THE ROLE OF DIFFERENTIATION STRATEGY AND INNOVATION IN MEDIATING THE RELATIONSHIP BETWEEN MARKET ORIENTATION AND THE BUSINESS PERFORMANCE OF TEXTILE SME IN BALI

SMEs today have a very strategic role, thus it is very important for the government to provide the SMEs with some attention. This is because of the large potential SMEs have in driving the economy, and SMEs are also the source of income which may improve the welfare of the people. Likewise, the textile SMEs in Bali are experiencing fluctuations in their business performance. The cause is because they are still not able to execute their business strategy optimally. This research has a purpose to explain the influence of market orientation on business performance which is mediated by the differentiation and innovation strategy of the textile SMEs in Bali.

This research is conducted on the textile SMEs in Bali, with a total of 60 units. The sampling technique used is the total population sampling, which means that the whole research population is selected as sample. Respondents are entrepreneurs or textile business owners in the 9 regencies/cities in Bali. The data analysis technique utilized is SEM based on PLS (Partial Least Square).

The research results show that market orientation has a positive and significant influence on business performance. Market orientation has a positive and significant influence on differentiation strategy. Market oreintation has a positive and significant influence on innovation strategy. Differentiation strategy has a positive and significant influence on business performance. Innovation strategy has a positive and significant influence on business performance. The differentiation and innovation strategy variable are able to directly mediate the relationship between market orientation and business performance.

This research is expected to provide empirical contribution regarding the relationship between the market orientation variable, differentiation strategy, innovation strategy and business performance. It also enriches the theoretical reviews in the fields of business strategy. It is advisable for the textile SME owners in Bali to always listen to customer’s opinion, create service differentiation, offer unique products that are not offered by competitors, and to maintain the quality of the textile products they offer in order to retain customer trust and loyalty.

Keywords: Market Orientation, Differentiation Strategy, Innovation Strategy and Business Performance